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Previous Page | Contents | Zoom in | Zoom out | Front Cover | Search Issue | SubscribeqMqM | Next PageqqM qMMQmagsTHE WORLD’S NEWSSTAND ®last wordLED industry tales from TaiwanA recent visit to Taiwan highlighted a number of issues in the local LED industry,writes ELLA SHUM, Director of HB-LED Research with STRATEGIES UNLIMITED.On a recent trip to Taiwan, it becameclear that the overall feeling amongLED industry players is prettygloomy. I came across a variety of issues relatingto LED pricing, personnel, and subsidies.However, one company, Lextar, managed togo public in September (www.ledsmagazine.com/news/8/9/35), so the news is not all bad.Concerning pricing, the industry wasshocked by rumors of a quote of $0.08 givenby a large Korean vendor for a 5630-typepackaged LED for lighting. Such packagesare often used in retrofit lamps that do notrequire high lumen output. The price is equivalentto approximately 400 lm/$. Even in Taiwan,where the art of cost-cutting is mostrefined, this price is looked upon as belowcost. A curious observer would note that asimilar package from the same vendor designatedfor backlight applications is moreexpensive. The conclusion varies, but mostpeople feel this may be an attempt to buy thelighting market, or that it is another tacticto put downward pressure on prices for thewhole industry and to force weaker playersout. Whatever it is, once the prices go down,they don’t usually go back up.Retaining personnel is a challenge forTaiwanese companies: whole teams of engineershave moved from Taiwan to China,and with a 4-5-fold increase in salary, thetemptation can be irresistible. Teams frequentlymove together, but this is essentiallya one-way street since no Taiwanesecompanies will ever hire them again. Whenthere were many start-ups in China buyingMOCVD systems last year, bidding warswere frequent for these teams. What’s interestingis that quite a few of these relocatedpersonnel have totally changed their identity.The suspicion is that these people tookvaluable IP with them. Due to the politicalsituation between the two regions, thereis no legal way to pursue or extradite suspectedcriminals from China to Taiwan. Ina Confucian society, where ancestry worshipis core to the cultural identity, changingone’s name means denying one’s ancestors.I only hope the money is worth it.I met someone from Taiwan whose companysold energy-saving electronic ballastsfor florescent lights. He secured a contractto supply 2700 ballaststo a major US retail chainstore.The product performedas specified, saving 25-30%energy, and payback was 1.5years based on 24/7 usage. Myfriend called every 6 months tocheck on the products and seeif follow-on orders were goingto come. After a couple ofyears, he gave up calling. Fouryears after the initial installation,he received an orderfor 775,000 units. Similarly, after Walmarttested LED lights from GE in their refrigeratordisplays, it took them 3 years to decide toroll out LEDs in all stores. This illustrates thechasm between the early adopters and theearly majority. Time has passed since thesestories happened, and the chasm is probablyshorter now. However, if you are a start-up inthe LED lighting market, what is your strategyfor crossing the chasm?A new kind of net profitThe mainstream semiconductor industryis used to feast and famine. During downcycles,weaker players leave the scene, whilestronger ones survive to reap the profit in thenext upturn. In this particular down-cycle,we have noticed something interesting whencomparing the net profits of two LED chipcompanies; Epistar from Taiwan and SanAnfrom China.Epistar’s net profit for the first half of2011 was NT 1.1 billion ($35.7 million), witha margin of 11%. In the same period in 2010,the margin was 29% on NT 2.7 billion ($88.6million) net profit. In contrast, SanAn’s netprofit margin for the first half of 2011 wasRMB 459 million ($72.3 million) with 64%margin. In the same period in2010, the margin was 56% onRMB 202 million ($31.8 million)net profit. Why the hugedifference in profit marginbetween the two companies?Why did SanAn’s margin andnet profit go up in 2011 whenthe overall market crashed?Upon further analysis,SanAn received RMB 583 million($91.8 million) in subsidiesfor the first 6 months of 2011from the government, and that is countedtowards its net profit. If you take out the subsidies,it lost RMB 124 million ($19.5 million).For the rest of 2011, SanAn still has RMB 928million ($146.2 million) in subsidies to add toits balance sheet.Another new player in the China LEDworld is ETI (Elec-Tech International), whichreceived subsidies totaling RMB 534 million($84.1 million) in 2011. This is an amounthigher than the net profit of the company’sLED business.I think we will have to invent a new term forthis type of “net profit,” to distinguish it fromthe hard earned “net profit” we are used to.MORE: View an extended version atwww.ledsmagazine.com/features/8/11/3.80 NOVEMBER/DECEMBER 2011 LEDsmagazine.comPrevious Page | Contents | Zoom in | Zoom out | Front Cover | Search Issue | SubscribeqMqM qMM MQmags| Next Page q qTHE WORLD’S NEWSSTAND ®